Payment Processors: Increased customer satisfaction, order sizes, and less payment friction – short-term financing through Buy Now, Pay Later seems like a no-brainer to offer. In fact, 87% of consumers who have used BNPL say they won’t return to stores that don’t offer it. Yet for payment service providers (PSPs), Top BNPL may seem like a substantial opportunity but also a significant threat.
“To meet consumer demand, PSPs have been partnering with top BNPL companies in the direct-to-consumer sector, which creates challenges by giving away transaction volume and margins. Most PSPs don’t realize that they can use a different third-party BNPL solution and still process transaction volume on their own rails.
About 55% of businesses that do not currently offer BNPL solutions say they plan to do so within the next 12 months. That creates a significant opportunity for PSPs to become a payment processor and be part of the mix. If you are not offering BNPL as a payment option, you risk getting left behind.
So why haven’t PSPs universally adopted a BNPL solution that works for them? Here are some of the top myths of BNPL for payment processors that may be holding you back (and the reality instead).
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5 Myths (and Truths) About BNPL for Payment Services Providers
Myth 1: Payment Facilitators Compete with all BNPL
If you use a traditional BNPL provider like Klarna or Afterpay, your role as B2B payment processors in processing the final payment gets disintermediated. Instead, the third-party provider takes over the transaction and embedded fees. Customers shift away from using your platform, costing you processing volume, fees, and margin. PSPs, also known as payment facilitators (payfacs), become understandably hesitant to use a solution that can decrease transactions and revenue.
However, you can find a BNPL partner that puts you back in the driver’s seat and empowers you to keep transactions on your rails. Instead of fighting BNPL providers for transaction volume, keep it. You also benefit from the increase in volume from offering a flexible payment method.
Myth 2: You Lose the Shopping Cart and Relationship
A major concern when incorporating BNPL solutions for PSPs is losing the relationship with the customer. Many BNPL providers, often considered the best payment processors for small businesses, have built one-stop super apps where customers can shop at different marketplaces instead of staying with one merchant. The downside is that distractions take shoppers away from the original shopping cart and siphon away transaction volume.
However, by working with the right BNPL provider, you can keep transactions completely within your ecosystem — and the merchants’ — rather than having customers choose potential competitors. All payments live within the merchant shopping cart, allowing ownership of the total cart experience. A white-label solution also offers brand consistency that improves the customer experience.
Myth 3: You Need Consumer Underwriting Capabilities
BNPL functions as a short-term loan, allowing the buyer to finance purchases over multiple payments, usually without fees or interest. To offer financing, platforms need consumer underwriting capabilities to assess the risk of consumer repayment.
BNPL borrowers are more likely than others, on average, to be highly indebted, revolve on their credit cards, and have delinquencies in traditional credit products. On retail accounts, they employ significantly higher usage of credit (62% compared to 44%). Understanding the credit profile of the borrower is critical to any financing decision.
PSPs typically have merchant underwriting capabilities but not consumer underwriting. You can, however, leverage your BNPL provider’s consumer underwriting tools to perform your own analysis. The assumption of risk also falls on the BNPL provider.
Myth 4: BNPL Increases Your Risk
According to the Canadian Payment Methods and Trends Report 2023, key perceived barriers to adopting BNPL include the risk of non-payment and cash flow concerns. A full 42% of BNPL users have made a late payment, which raises the risk of non-payment. Especially given rising interest rates, PSPs do not want that balance sheet risk.
By partnering with a BNPL provider, you completely outsource the repayment risk to them. The BNPL provider makes an instantaneous funding decision, the customer checks out, and merchants get paid without having to wait for customer settlement.
Myth 5: Adding BNPL Is Complex
Building a BNPL solution from scratch requires extensive investment and development time to handle underwriting, payment processing, and compliance. You need to include risk assessment and financing solutions while integrating with platforms, payment gateways, and banking systems.
The right BNPL integration can make it easy to implement BNPL into your payment processing solution. A no-code turnkey solution uses APIs to simplify integration. That seamless integration creates a true partnership with your merchants, expanding payment offerings and letting both of you share in revenue growth.
Why PSPs Need to Offer Buy Now, Pay Later Options
Adding BNPL meets growing customer demand and increases the odds of a sale, but most third-party BNPL providers remove transaction volume from PSPs. However, building your own solution to solve this challenge is time-consuming and expensive. PSPs that don’t find the right provider risk alienating customers. On the other hand, partnering with the right BNPL solution creates a frictionless payment experience without reducing your processing volume.
Gratify is transforming the Buy Now, Pay Later landscape for ISOs, payfacs, and acquirers. Process BNPL transactions on your rails while transferring underwriting, lending, collections, and risk to us. Contact Gratify to elevate your checkout experience and take back ownership of BNPL transaction volume today.
How to become payment processor?
To become a payment processor, you need to start by understanding the payment industry’s regulations and obtaining the necessary licenses. Next, establish partnerships with banks or financial institutions and invest in secure, reliable payment processing technology. Finally, focus on building a robust infrastructure that includes fraud prevention and data security measures to ensure safe and efficient transaction processing.
What is a payment processor?
A payment processor is a company or service that handles transactions between two parties, such as a merchant and a customer. It facilitates the processing of electronic payments, typically involving credit and debit cards, by transferring data from the user’s card to the merchant’s bank. The payment processor verifies the transaction details, checks for available funds, ensures compliance with security standards, and ensures the secure transfer of funds. This service is essential for businesses to accept and manage online or in-store electronic payments.
What does a payment processor do?
A payment processor is integral to the facilitation of electronic transactions. It begins its role by authorizing transactions; when a customer makes a purchase, the payment processor verifies with the customer’s bank to confirm sufficient funds or credit availability. A critical aspect of its function is ensuring the security of the transaction. It does this by encrypting sensitive data, such as credit card numbers, to safeguard against fraud.
Once the transaction is authorized, the payment processor is responsible for the actual transfer of funds from the customer’s account to the merchant’s account. Finally, it settles all transactions, which involves reconciling the sales and ensuring that merchants are paid the correct amount, after deducting any applicable fees. This comprehensive management allows merchants to seamlessly accept various forms of electronic payments, including credit and debit cards.